Aetna Cas. & Sur. Co. v. Dow Chemical Co., 93-73601.

• Decision Date: 17 March 1999
• Docket Number: No. 93-73601.,93-73601.
• Parties: AETNA CASUALTY & SURETY CO., Plaintiff, v. DOW CHEMICAL CO., Defendant.
• Court: U.S. District Court — Eastern District of Michigan

Page 870

44 F.Supp.2d 870

AETNA CASUALTY & SURETY CO., Plaintiff, v. DOW CHEMICAL CO., Defendant.

No. 93-73601.

United States District Court, E.D. Michigan, Southern Division.

March 17, 1999.

COPYRIGHT MATERIAL OMITTED

John F. Milan, Harvey, Kruse, Troy, MI, for Defendant Century Indem. Co.

John F. Milan, Harvey, Kruse, Troy, MI, James F. Martin, Cohn & Baughman, Chicago, IL, for Certain Defendants in 93 cv 73601.

Joseph A. Hinkhouse, Lord, Bissell,, Chicago, IL, for London Insurers, Schlumberger Technology Corp., McCarthy and Cos.

Ronald E. Reynolds, Butzel Long, Birmingham, MI, Matthew R. Wildermuth, Brand & Novak, Chicago, IL, for Movant Ins. Co.

Kenneth C. Newa, Plunkett & Cooney, Petoskey, MI, Charles W. Browning, Plunkett & Cooney, Detroit, MI, for Movant Travelers Cas. and Sur. Co.

Stanley A. Prokop, Plunkett & Cooney, Petoskey, MI, for Movant Intern. Ins. Co.

Jonathan P. Rich, Simpson, Thacher, New York, NY, Kenneth C. Newa, Detroit, MI, Charles W. Browning, Plunkett & Cooney, Detroit, MI, for Plaintiff Aetna Cas. and Sur. Co.

John I. Grossbart, Sonnenschein, Nath, Chicago, IL, for American Home Assur. Co.

Ronald W. Rice, Rice, Galin, Southfield, MI, Charles S. Bergen, Marc S. Lauerman, Michael P. Conway, John Z. Lee, Grippo & Elden, Chicago, IL, Christina L. Sciabica, Grippo & Elden, Chicago, IL, for American Ins. Co., Assoc. Indem. Corp.

OPINION AND ORDER DENYING AMERICAN RE-INSURANCE COMPANY'S MOTION TO DISMISS AND FINDING PROPER SUBJECT MATTER JURISDICTION

EDMUNDS, District Judge.

This matter came before the Court at a hearing on December 17, 1998 on allegations that subject matter jurisdiction may be lacking in this case. This issue was raised by American Re-Insurance Company's motion to dismiss and memoranda regarding subject matter jurisdiction filed by three parties: (1) American Re-Insurance Company; (2) Dow Chemical Company; and (3) The London Insurers. Subsequently, the parties agreed to dismiss American Re-Insurance without prejudice. As explained below, the Court finds that it has proper subject matter jurisdiction in this case. Accordingly, American Re-Insurance Company's motion to dismiss is denied.

I. Facts

Initially, on June 5, 1993, Aetna Casualty & Surety Company filed a declaratory judgment action against Dow Chemical Company ("Dow"), American Re-Insurance Company ("Am Re"), and other insurers in Wayne County Circuit Court. Two months later, Aetna voluntarily dismissed that case. Then, on August 25, 1993, Aetna refiled its declaratory judgment action here in federal court, naming Dow¹ and various insurers as defendants. The alleged basis for jurisdiction was diversity. Aetna did not name Am Re a defendant in the original complaint filed in federal court.

On November 24, 1993, Dow filed an Answer and Counterclaim against Aetna as well as a Third Party Complaint. Dow filed an Amended Third Party Complaint on December 10, 1993, and a First Amended Counterclaim on January 12, 1995. The Third Party Complaint added Am Re and certain other insurers as defendants to the action. On November 24, 1993, Dow also filed Cross Claims against certain insurers.

In addition, various insurers filed claims against one another for contribution and indemnity. All of the insurers in this litigation, whether brought in by Aetna or Dow, are collectively referred to as the "Insurers."² Cross Claims between all of the Insurers have been deemed filed and stayed pursuant to Case Management Order No. 3.³ Revised Case Management Order # 3, § A II, filed December 2, 1996.

The Complaint filed by Aetna and the Amended Third Party Complaint filed by Dow alleged that jurisdiction in this case was based in diversity under 28 U.S.C. § 1332 because this was a suit between citizens of different states and the amount in controversy exceeded $50,000.⁴

Diversity jurisdiction requires that a plaintiff be a citizen of different states than all defendants. A corporation has citizenship in its state of incorporation and where it has its principal place of business. 28 U.S.C. § 1332(c)(1). Dow Chemical is a Delaware corporation with its principal place of business in Michigan, and thus its citizenship is in Delaware and Michigan. The Third Party Complaint alleged that all of the third party defendants were diverse from Dow. Specifically, it alleged that Am Re was incorporated in Pennsylvania and had its principal place of business in New Jersey. In fact, Am Re is incorporated in Delaware. When Am Re answered the Third Party Complaint, it admitted that its principal place of business was New Jersey and denied that was incorporated under the laws of Pennsylvania. It did not indicate that, like Dow, it was incorporated in Delaware, and thus was not diverse from Dow.

Now, five years later, American Re has asserted for the first time that diversity jurisdiction is improper because it is not diverse from Dow. Accordingly, Am Re filed a motion requesting its dismissal from this case in a pleading captioned "Memorandum Regarding Subject Matter Jurisdiction." Despite Am Re's failure to timely bring the issue of jurisdiction to the Court's attention, the issue of subject matter jurisdiction is not waivable under Fed. R.Civ.Pro. 12(h)(3) and may not be orchestrated by the parties, even by the voluntary dismissal of a party. Thus, the Court must determine whether it has proper subject matter jurisdiction in this case.

II. Analysis

A. Am Re's Motion to Dismiss

Am Re requests that it be dismissed from this case due to lack of subject matter jurisdiction. In a nutshell, Am Re contends that the Court must look beyond Am Re's status as a third party defendant and realign it as a defendant with Dow as plaintiff. Because Dow and American Re are not diverse, upon realignment there would be no diversity jurisdiction.

The diversity statute vests the court with jurisdiction over suits between citizens of different States and over suits between citizens of different States in which citizens of a foreign state are additional parties. 28 U.S.C. § 1332(a)(1) & (3). Diversity must be complete between all of the plaintiffs and all of the defendants. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806).

Generally, jurisdiction is determined at the time the case is filed. Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426, 428, 111 S.Ct. 858, 112 L.Ed.2d 951 (1991); Easley v. Pettibone Michigan Corp., 990 F.2d 905, 908-09 (6th Cir.1993). Parties may neither waive nor consent to jurisdiction where it does not exist. In re Wolverine Radio Co., 930 F.2d 1132, 1137-38 (6th Cir.1991). "No action of the parties can confer subject-matter jurisdiction upon a federal court." Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982). Under 28 U.S.C. § 1653, defective jurisdictional allegations can be corrected by amending a complaint at any time. Miller v. Davis, 507 F.2d 308, 311 (6th Cir.1974) (amendments for purpose of correcting jurisdictional allegations are broadly permitted to avoid dismissals on technical grounds). Defective jurisdictional facts, on the other hand, cannot be "corrected" by amending a complaint. Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832, 109 S.Ct. 2218, 104 L.Ed.2d 893 (1989).

If jurisdiction exists at the time the complaint is filed, it may not be divested by subsequent events such as the plaintiffs failure to prove his federal question claim, a change in citizenship of the parties, or a reduction in the amount in controversy below the jurisdictional amount. Jones v. Knox Exploration Corp., 2 F.3d 181 (6th Cir.1993); Klepper v. First American Bank, 916 F.2d 337, 341 (6th Cir. 1990); Hensgens v. Deere & Co., 833 F.2d 1179 (5th Cir.1987). There are two exceptions to determining diversity at the time a suit is filed. First, the court's realignment of the parties may destroy diversity. Second, joinder or intervention of a nondiverse indispensable party may destroy diversity.

1. Realignment

To sustain diversity jurisdiction there must be a bona fide controversy between citizens of different states. City of Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69, 62 S.Ct. 15, 86 L.Ed. 47 (1941). It is the court's responsibility to determine whether diversity jurisdiction is appropriate and to properly align the parties. In City of Indianapolis, the Supreme Court explained when realignment is proper.

Diversity jurisdiction cannot be conferred upon the federal courts by the parties' own determination of who are plaintiffs and who are defendants. It is our duty, as it is that of the lower federal courts, to look beyond the pleadings, and arrange the parties according to their sides in the dispute. Litigation is the pursuit of practical ends, not a game of chess. Whether the necessary collision of interest exists, is therefore not to be determined by mechanical rules. It must be ascertained from the principal purpose of the suit and the primary and controlling matter in dispute.

Id. at 69, 62 S.Ct. 15 (quotation marks and citations omitted). Party alignment should be evaluated on a case by case basis, and not according to inflexible rules. U.S. Fidelity and Guar. Co. v. Thomas Solvent Co., 132 F.R.D. 660, 666 (W.D.Mich.1990). "[L]ower courts should be particularly aware of strategic party alignments arranged primarily to satisfy federal jurisdictional requirements." Id. Realignment can result in the loss of diversity jurisdiction.

In interpreting City of Indianapolis, the circuits are split on whether to use the "primary purpose" test or the "substantial dispute" test to determine realignment. The Third, Fourth, Fifth, Sixth, and Ninth Circuits utilize the "primary dispute" test. These courts find that in a declaratory judgment action regarding insurance coverage, the parties should be realigned according to the primary dispute, with the insured on one side and the insurers on the other. Concomitantly, they find that...